Can’t pay, won’t pay

May 26, 2015


Latvian President Berzins welcomes Greek Prime Minister Tsipras at the Eastern Partnership Summit in RigaAfter many mixed messages in recent months, the Greek government seems to have alighted on one simple line: can’t pay, won’t pay.

A growing list of senior members of the government have openly said Athens does not have the means to pay the International Monetary Fund and would prioritise paying civil servants and pensioners instead. “We haven’t got the money. We won’t pay. It’s that simple,” Deputy Foreign Minister Nikos Chountis, who holds the European affairs portfolio, said.

If so, a cash-for-reforms deal with the EU and IMF must be struck before payments totalling about 1.5 billion euros to the Fund fall due next month, or Greece will default. Officials say even the first of those bills on June 5 might be unpayable without outside help. Talks between technical teams from Greece and its creditors in the “Brussels Group” resume today.

Ruling Syriza’s central committee has approved Prime Minister Alexis Tsipras’s proposed line on the negotiations — that a deal should include low primary budget surpluses, no cuts in wages and pensions, a debt restructuring and an investment programme. The hard-left faction’s call for a clash with lenders was rejected but the vote was close, demonstrating the internal opposition Tsipras must weigh in the balance as well.

Tsipras said over the weekend that a deal was close which would not involve further pension cuts and harsh austerity. He said he would not yield to “irrational demands” on VAT tax rates and further labour market liberalization.

Finance Minister Yanis Varoufakis said Greece had moved three-quarters of the way and its lenders should give ground on the final quarter. The problem is there is no sign of Greece’s creditors doing so. Unless the numbers add up, no more money will be forthcoming and that will require some more bitter medicine to be swallowed by the Greek people.

Prominent opposition lawmaker Dora Bakoyianni said Greece risked facing capital controls to stem deposit outflows if it did not reach a deal for aid with its lenders this week.

That will weigh on European markets which were largely shut on Monday for a public holiday. So too will a weekend reverse for Spain’s ruling People’s Party which suffered its worst result in 20 years in regional and local elections, casting doubt on Prime Minister Mariano Rajoy’s belief that a robust economic recovery will secure him a second term in power when national elections are held in November.

Italian bond futures, used as a proxy for other lower-rated euro zone bonds, have dropped more than a point in early trade, reflecting those concerns.

Hungary’s central bank is expected to cut interest rates by a further 15 basis points to a new low of 1.65 percent despite a recent sell-off in government bonds that has weighed on the forint.

Inflation in Hungary is still negative, at an annual -0.3 percent in April. The National Bank of Hungary cut its main interest rate the first time in eight months, by 15 basis points, in March. A similar reduction followed the month after and the bank has flagged further easing to come.

Islamic State poured more fighters into Ramadi as security forces and Shi’ite paramilitaries prepared to retake the Iraqi city that fell to the Islamists a week ago in a major setback for the government. In Palmyra, the Syrian air force struck at buildings captured by the Sunni militant group, whose arrival has raised fears that the city’s famed Roman ruins will be destroyed.

The fall of Ramadi and Palmyra, at opposite ends of the vast territory controlled by IS fighters, were the militant group’s biggest successes since a U.S.-led coalition launched an air war to stop them last year.

Negotiations between Iran and six world powers are scheduled to resume in Vienna at level of experts and political directors. The sides have set an end-June deadline to flesh out an interim accord struck in April that curbs Iran’s nuclear programme in return for relief from international sanctions.

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